A Complete Guide For Parents

In today’s world, investment is not limited to adults. Parents also want to invest in the name of their children for their bright future. To fulfill this purpose, a Minor Demat Account facility is provided. This article will explain all the important information related to the Minor Demat Account in detail.

What is a Minor Demat Account?

A Minor Demat Account is a Demat Account opened in the name of a minor below the age of 18 years. Since minors cannot take financial decisions, this account is operated by their parents or legal guardians. Through this account, parents can make long-term investments for their child’s future. Although options like intraday trading and derivatives are not available in this account, investments in shares and mutual funds can be made in it. Once the child turns 18 this account will be converted into a regular Demat account which he can operate himself.

Why open a Minor Demat Account?

Long-Term Investment for Children– Parents want to invest prematurely for the future of their children so that they can get money for higher education or other needs.
Tax Benefits– Parents can use this account under tax planning.
Inculcating the habit of investing– It helps in making children aware of investment and the stock market from childhood.
The facility of investment in the name of the child– Investments can be made in some special financial schemes in the name of children, which will benefit them in future.

How to Open a Minor Demat Account?

Required documents:

Minor’s birth certificate– To verify the age of the child.
PAN card of minor and guardian– Mandatory for opening a demat account.
Aadhaar card of guardian– Required as identity proof.
Bank account details– In the name of a minor or joint account with a guardian.
Passport size photo– Of both minor and guardian.

Account Opening Process:

Choose a broker– The investor should choose a good and reliable broker (Zerodha, Upstox, Angel One etc.).
Fill out the online or offline application– Many brokerage firms provide the facility of filling out the form online.
Upload required documents– Upload scanned copies of all documents.
Complete the verification process– The broker will verify your documents.
Account activation– The account will be activated after all the formalities are completed.

Features of Minor Demat Account

Purchasing allowed, but no trading – Shares can be purchased under the Minor Demat Account, but Futures and Options (F&O) and intraday trading are not allowed.
Non-independent account– It remains completely under the control of the parent or guardian.
Full control after 18 years– When the minor turns 18, this account is converted into a regular demat account, and the child can control it himself.
Contribution limit– Tax regulations may apply to investments made in the name of children, so parents should keep the tax rules in mind.

1. Parental role – Only parents or legal guardians can operate the account.

2. Taxation rules – The income of the minor is added to the income of the parents and tax is paid accordingly.

3. Process after completion of 18 years – When the minor turns 18, he has to get a new PAN card and complete the KYC process, so that the account can be operated independently.

4. Trading Limits – Only long term investments are allowed, while intraday trading and derivatives are not allowed.

Advantages of Minor Demat Account

Suitable for long-term investments– It helps investors to make long-term plans for their children’s future.
Early education of the stock market– Children can learn about investing from the beginning.
Low-risk investments– The Minor Demat Account allows investments only in equities, which limits the risk.
Tax saving benefits – Tax benefits can be obtained by investing in certain special schemes under tax planning.

Disadvantages of Minor Demat Account

Limited trading facilities– Intraday trading and derivatives are not allowed.
Complete dependence on the parent – Minors do not have the freedom to take their own investment decisions.
Complexity of tax rules– There are some complex rules related to tax that need to be followed.
Account transfer process – After the age of 18, it is necessary to convert the account to a regular demat account, which can be complicated at times.

Conclusion

Minor Demat Account is a useful tool through which parents can start investing for their children. It not only provides financial security for the future but also gives children a basic understanding of investing. However, it also has some limitations, but if managed correctly, it can prove to be a profitable option. If you want to start investing for your child, then Minor Demat Account can be a great option.

Minor Demat Account FAQs

Can a demat account be opened for a minor?

Yes, a Demat account can be opened in the name of a minor. The account will be operated by a guardian till the minor becomes major. Guardian has to be the father or in his absence mother. In absence of both, father or mother, the guardian can be appointed by court.

Can a minor be a joint holder in another demat account?

No, Minor cannot be a joint holder in a demat account.

Can a trading account be opened in the name of a minor?

A trading account can be opened in a minor’s name solely for selling securities acquired through IPOs, inheritance, corporate actions, or off-market transfers, including gifts, family transfers, and regulatory directives. The natural guardian will operate the account until the minor turns major.

Can buying and selling of securities be done in a minor’s trading account?

A minor cannot contract with a stockbroker for trading but may have a trading account solely to sell securities acquired through specified means.

Can a minor’s demat/trading account continue after they turn major?

Yes, a minor’s demat/trading account can continue after they turn major, but they must confirm the balance and complete the necessary formalities to operate it independently.

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